Fighting Inflation and Finding Workers in the Supply Chain

The past year has presented many challenges in the supply chain. A boom in e-commerce, unemployment fluctuation, labor participation, and commodity prices have contributed heavily to the volatility of the economy.

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Many industry experts in manufacturing and distribution have noted the turbulence in the supply chain. This was fuelled in part by a skyrocketing unemployment rate that settled back into increased demand after the start of the pandemic.

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Compounded by this higher demand, the ten year outlook is drastic for the manufacturing labor market. The Manufacturing Institute forecasts that unfilled roles in the sector could have a trillion dollar economic impact to GDP by 2030.

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With this kind of demand for workers, and the unemployment rate still not returning to pre-pandemic levels, you might be wondering what is going on.

What’s making it hard to find workers?

A popular theory is that the rate and amount of economic stimulus and unemployment benefits are offsetting workers’ desire to return to open roles.

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This is partially correct, except for the part about people’s willingness to work.

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The ultimate reason workers are not returning at a faster pace is rooted in an economic and monetary nightmare: inflation.

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Inflation and labor participation are co-dependent dynamics. One does not cause the other. At the end of the day, workers are also consumers.

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E-commerce demand and commodities from lumber, gas, corn, and aluminum are spiking. Those commodities go into everyday goods. Verticals like CPG are facing enormous economic pressure in the cost of packaging, transportation, and ingredients.

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Consumers are still paying for these goods because the economic stimulus and expanded unemployment benefits have injected more dollars into the money supply (a 105% increase in M1) at a faster rate than at any point in history.

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The normal economic cycles that lead to inflation generally include the following: 

• an increase in prices for commodities used to make everything (e.g. lumber) 
• a higher cost of production for manufacturers
• producers passing those costs to consumers

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The increased cost for finished goods drives higher wage rates. This is happening now, and consumers are generally accepting those price increases. Whether their spending will continue after stimulus stops, time will tell. But for now, they are seeing prices rise and want to maintain their cash flow, which means they're asking for higher wages.

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The rising costs of goods and wage pressures lead to businesses looking for workers at pre-pandemic wages and wondering - where are they?

Ways to win workers in this environment

With stimulus flowing and dollar supply high, businesses will have to get creative to attract workers back to the production line. There are four main ways to win over workers right now:

1. Get competitive with rates. Manufacturing, distribution, logistics and warehousing will have to put their absolute best offer on the market to attract the volume of workers needed. If anything, the last year has taught everyone that nothing is static in this environment. Wage rates will settle, and you’ll have developed a loyal following when labor costs plateau.
2. Focus on productivity versus long term retention. Why set the goal of 100% staffing to averages, when no one knows where the demand will be a month, quarter, or year from now? Filling headcount based on these averages will cost you. You’ll sink the cost into on-boarding, training, and retention. Then, you'll see the dynamic shift, demand reduce, or turnover happen. Shortening the cycle of work to match productivity fits the work environment and matches the desire of the labor force. Workers are looking for the highest earning potential without long term commitment.
3. Treat the worker as a consumer. Give them the buying power they need! With the cost of everything going up, doing work for the pay set before the pandemic is not an attractive offer in most circumstances. If workers are looking at what they can make in a day, and realizing it is not going to cover necessities like food, gas, and clothing, they are less likely to participate and potentially be discouraged. Make the work opportunity attractive in the form of the scope, flexibility, and the reward for productivity.
4. Incrementalize work. To make the work most productive, you have to match it to demand. Latency is a killer in the over-staffed environment. Labor costs are flying out the door, productivity is low, and you might end up making a tough decision about downsizing. By offering the “worker as a consumer” approach, your business can offer schedule flexibility, pay above market rates, and address demand in real time.

How to incrementalize work and gain flexibility

Two of the ways to win over workers we mentioned above require a way to match labor capacity to demand. At Veryable, we see the impact this has on businesses every day as they use our on-demand labor marketplace to flex their labor capacity. You can bring in workers within days rather than weeks, and build up a labor pool of trained workers on standby.

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Read our blog on what on-demand labor is and how it can help you find workers for incremental work.